U.S. dollar highlights:
USD stable after Federal Reserve Chairman Jerome Powell’s testimony to the Joint Economic Committee of Congress yesterday. Powell said that interest rates will remain on hold after three straight cuts this year; however, the central bank could resume lowering rates if the growth outlook deteriorates. Markets interpreted this as if the trade war continues and Phase One of a deal not signed soon, another rate cut is possible in 2020. Other threats to the economy include slow global growth and low inflation. Meanwhile, President Trump said the Fed should consider negative interest rates, but Powell responded that monetary policy will not be due to political pressure. USD strengthened before Powell’s testimony and remained flat after. Any new trade developments (including removing tariffs) will keep USD strong.
Canadian dollar highlights:
CAD weaker as markets prepare for Bank of Canada Governor Stephen Poloz’s speech this morning. Interest rates remain at 1.75% and the highest since December 2008. Market sentiment is currently risk-off and lower oil prices also putting pressure on CAD. The next policy meeting is December 4 and markets have already priced in a 25bps cut for 2020. Lower chances of a trade deal between China and U.S. has affected the energy sector and decreased oil prices so CAD will remain under pressure. Meanwhile, OPEC said the current deal will run until March 2020.
EUR weaker as the German economy could fall into a recession in Q3. German inflation rate for October was 0.1% monthly and 0.9% yearly (both as expected). The European Central Bank is expected to maintain their stance but may also continue cutting interest rates in 2020. Meanwhile, Industrial Production declined 1.7% in September and this was the eleventh consecutive month of contraction. All eyes on GDP Growth Rate for Q3 today.
British pound highlights:
GBP weakness continues after October Consumer Prices were lower than expected and political uncertainty rules. Inflation dropped to 1.5% last month (versus 1.6% expected and previously 1.7%); however, economic data has had little affect on GBP direction. Current polls indicate the Conservatives have a small lead over the Labour party and this would result in a divided parliament and more disagreements. A victory for Prime Minister Boris Johnson will increase the chances his Withdrawal Agreement will pass Parliament. Retail Sales for October expecting to improve by 3.7% today.